Taxation Handbook

KTAXATION HANDBOOK

A

Guide to T

axation in Uganda

TAXATION HANDBOOK

A PUBLICATION OF

Uganda Revenue Authority,Public and Corporate Aff airs Division,

P. O. BOX 7279, Kampala, Uganda.

Tel: 0417 442054/5 or 0417 443150

URA Toll free help line: 08001 17000

Email: [email protected]

URA Web portal: //ura.go.ug

A Guide to Taxation in Uganda

TAXATION HANDBOOKA Guide to Taxation in Uganda

A Publication ofUganda Revenue Authority

FOUNTAIN PUBLISHERS

Kampala

Fountain PublishersP. O. Box 488KampalaE-mail: [email protected]@fountainpublishers.co.ugWebsite: www.fountainpublishers.co.ug

Distributed in Europe and Commonwealth countries outside Africa byAfrican Books Collective Ltd.P. O. Box 721Oxford OX1 9EN, UKEmail: [email protected]: www.africanbookscollective.com

Uganda Revenue Authority 2011First published 2011

All rights reserved. No part of this publication may be reprinted or reproduced or utilised in any form or by any means, electronic,mechanical or other means now known or hereafter invented, including copying and recording, or in any information storage or retrieval system,without permission in writing from the publishers.

Layout, design: Robert Asaph Sempagala-Mpagi

ISBN 978-9970-02-977-8

Cataloguing-in-Publication Data

Taxation Handbook: A Guide to Taxation in Uganda Kampala: Fountain Publishers, 2011

__ p; __ cm.

Includes tables

ISBN 978-9970-02-977-8

1. Guide to Taxation I.Uganda

iiiiii

Foreword ............................................................vii

Part A Background to Taxation ........................1

1 Introduction to Taxation.....................................3

2 History of Taxation Handbook...........................4

3 The Legality of Taxes y of Taxes Collected by the Centhe Central Government ................................6

4 Principles of Taxation ..........................................7

5 Characteristics of Taxes.......................................9

6 Classification of Tax ..........................................10

7 Role of Taxation ................................................. 11

8 Structure of the Ugandan Tax System..............12

9 Brief on E-Tax.....................................................13

Part B Income Tax ..........................................17

1 Introduction .......................................................19

2 Definition of Key Terms....................................19

3 Scope...................................................................21

4 Sources of Income..............................................21

5 Exempt Income ..................................................37

URA Toll-free Help line 0800-117000iviv

6 Determination of Tax liability ..........................y 37

7 Persons assessable to Tax77 ...................................39

8 Income Tax Registration ...................................50

9 Returns of Income .............................................52

10 Income Tax Clearance Certificate .....................56

1111 Assessments .......................................................57

12 Objections and Appeals under Income Tax......58

13 Withholding Tax System ...................................60

Part C Value Added Tax (VAT) ......................67

1 Background ........................................................69

2 Definition of Key Terms....................................69

3 Scope of VAT ......................................................71

4 VAT Registration ...............................................72

5 Supply of Goods and Services ...........................8181

6 Calculation of VAT .............................................85

7 Tax Invoice77 ..........................................................92

8 VAT Return and Payment of Taxx......................93

9 VAT Assessments...............................................95

10 Objections and Appeals ......................................96

1111 VAT Refund .......................................................97

12 Administrative Issussues ........................................9999

v

Part D Local Excise Duty ..............................101

1 Local Excise Duty ............................................y 103

2 Taxable Value ...................................................103

3 Tax Point ..........................................................103

4 Licensing...........................................................104

5 Remission (waiver) of Excise Duty .................y 104

6 Returns and Payment ......................................104

7 Tax Computation/Tax Rattion/Tax Rates77 ..........................105

Part E Non-Tax Revenue (NTR) ...................109

1 Non-Tax Revenue (NTR) ................................ 111

2 Stamp Duty .....................................................y 111

Part F Customs ............................................ 119

1 Customs ........................................................... 121

2 vironmentOperating Environment....................................1122

3 Definition of Key TermsDefi ..................................125

4 Customs Procedures .........................................128

5 Clearance of Passengers and Baggage.............. 132

6 Exemptions under the Fifth Schedule of EAC-CMA....................................133

7 Specific Duty77 ....................................................y 136

8 Export Duty.....................................................y 140

URA Toll-free Help line 0800-117000vivi

9 Computation of Import Duty.........................y 141

10 Objections and Appeal .................................... 142

Part G Special Features of the Taxes Administered by the URA .................143

1 Payment of Tax................................................ 145

2 Regulations ....................................................... 145

3 Rulings.............................................................. 146

4 Remission of Tax ............................................. 147

5 Double Taxation Treaties ................................ 147

6 Taxpayers Charter ................................ 147 160

Foreword viivii

I am glad to introduce to you the Taxation Handbook: A Guide to Taxation in Uganda. The handbook has been developed as a guide to our stakeholders in line with the administration of central government taxes in Uganda. The main objective of this handbook is to provide information and serve as reference material for all our stakeholders to include the academic fraternity. It has been put together by a taskforce of the Uganda Revenue Authority in conjunction with the National n conjunction with the National Curriculum Develo Development Centre.

This hais handbook comes at a time when taxation as aa subject has been introduced not only in tertiary institutions, but also in primary and secondary schools. Since everyone, in one way or another pays taxes, it is crucial that we come up with a handbook that will offer answers to the numerous questions on taxation raised by the general public.

The handbook clearly outlines the structure of he different taxes that are paUgandas tax system, the different taxes that are paid

xpayers obligations as well as different ways and the taxpayers obligations as well as different ways which the aggrieved taxpayer may seek redress. in which

The handbook seeks to simplify the laws which govern taxation, for the benefit of our stakeholders and the academic fraternity. I hope that this handbook, which comes as a key complementary document to the taxation-related laws of Uganda, will help to generate a better understanding of taxation.

URA Toll-free Help line 0800-117000viiiviii

On behalf of the Uganda Revenue Authority, I would like to express our sincere gratitude to all those individuals, organisations and institutions that have played a key role in producing this handbook. In particular we recognize the development partners who sponsored the curriculum development in schools and the staff of URA for their contribution to the project.

Developing Uganda together,

Allen Kagina

Commissioner General Uganda Revenue Authority

Part A Background to Taxation 11

Part A

Background to Taxation

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Part A Background to Taxation

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1 Introduction to TaxationThe evolution of taxation is attributed to the development of the modern state, which led to increased expenditure for infrastructure and public services.

1.1 Origin of TaxationTax is the price we pay for civilization, which goes pay for civilization, which goes hand in hand withnd with organized society. For society to be organizeganized, it needs a well-financed administrative strucstructure. Therefore, taxation in its different forms has existed as long as society had the minimum elements of government. Tax is defined as a monetary charge imposed by the government on persons, entities, transactions or property to yield public revenue. Where payment is not monetary, a more wide embracing definition has been adopted as:

nforced proportional contributions Taxes are the enforced proportional contributions m persons and property levied by the State from persons

by virtue of its sovereignty for the support of by vgovernment and for all public needs (Thomas. M. Cooley: The Law of Taxation).

One of the main characteristics of a tax is that the payer does not demand something equivalent in return from the government for the payment. It is expected that when taxes are collected, they are used by government for public good and not just for those who make the payment.

Background to Taxation

URA Toll-free Help line 0800-117000

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2 History of Taxation in East AfricaTaxation as understood today was introduced in East Africa by the early British colonial administrators through the system of compulsory public works such as road construction, building of administrative headquarters and schools, as well as forest clearance and other similar works.

The first formal tax, the hut tax, was introduced in 1900. This is when the first common tariff arrangements were established between Kenya and Uganda. Through this, Ugandans started paying customs duty as an indirect tax, which involved imposition of an ad valorem import duty at a rate of 5% on all goods entering East Africa, through the port of Mombasa and destined for Uganda. A similar arrangement was subsequently made with German East Africa (Tanganyika) for goods destined for Uganda that entered East Africa through Dar-es-Salaam and Tanga ports. This gave rise to revenue e which was remitted to Uganda.

The Protectorate government heavily relied on cucustoms duties to fund its programs, yet the indigenousous Africans were not engaging in activities that wowould propel the growth of the monetary economymy. Accordingly, government introduced a flat rate pe poll tax that was imposed on all male adults. The reqrequirement to pay tax forced the indigenous Ugandanans to enter the market sector of the economy throhrough either selling their agricultural produce or hiring out their services. The hiring out their services. The tax burden was later increased by the introduction of ncreased by the introduction o


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an additional tax to finance local governments. This culminated into the first tax legislation in 1919 under the Local Authorities Ordinance. In 1953, following recommendations by a committee headed by Mr. C.A.G Wallis, graduated personal tax was introduced to finance local governments.

Income tax was introduced in Uganda in 1940 by a Protectorate ordinance. It was mainly payable by the Europeans and Asians but was later on extended to Africans. In 1952, the ordinances were replaced by the East African Income Tax Management Act, which Tax Management Act, which laid down the basiche basic legal provisions found in the current incoincome tax law. The East African Income Tax ManaManagement Act of 1952 was repealed and replaced by the East African Income Tax Management Act of 1958.

The administration of both income tax and customs duty was done by departments of the East African Community (EAC) until its collapse. Under the EAC dispensation, there were regional taxing statutes and uniform administration but the national governments

as they were called) retained the (or partner states, as they were called) retained the define tax rates.right to define ta

After the breakup of the EAC, the tax departments Aftwere transferred to the Ministry of Finance with the transfer of the Income Tax Department in 1974; followed by the Customs Department in 1977. In 1991, the function of administering Central government taxes was shifted from the Ministry of Finance to the Uganda Revenue Authority, a body corporate established by an Act of Parliament.


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The EAC was re-established in 1999 by Tanzania, Kenya and Uganda. Rwanda and Burundi joined the EAC in 2007. The EAC in December 2004 enacted the East African Community Customs Management Act 2004 (EAC-CMA). This Act governs the administration of the EA Customs union, including the legal, administrative and operations.

3 The Legality of Taxes collected by the Central Government Articles 152 (i) of the Uganda Constitution provides that No tax shall be imposed except under the authority of an Act of Parliament. Therefore, the Uganda Revenue Authority Act Cap 196 was put in place to provide the administrative framework in which taxes under various Acts are collected.

The Uganda Revenue Authority administers the tax laws (Acts) on behalf of the Ministry of Finance, Planning and Economic Development under the following legislation regulating taxes:

(i) Customs Tariff Act. Cap 337. (ii) East African Customs Management Act Act (iii) Excise Tariff Act Cap 338.(iv) Income Tax Act Cap 340(v) Stamps Act Cap 342 (vi) Traffic and Road Safety AcAct Cap 361(vii) Value Added Tax Act CaCap 349(viii) The Finance Acts.


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(ix) All other taxes and non-tax revenue as the Minister responsible for Finance may prescribe.

4 Principles of TaxationPrinciples of taxation are concepts that provide guidelines towards a good tax system. Since many view taxation as a necessary evil, it should be administered in such a way as to create minimum pain to the payer, just like the honey bee which collects nectar from the flower without hurting the flower.

Economists over time hver time have laid down the principles that policy malicy makers should take into account in making tax lawax laws; these are referred to as canons of taxation.

The following are the common canons of taxation:

4.1 Equity/Fairness

Tax should be levied fairly so that:

(i) The same amount is paid by persons or entities that are equal in earnings or wealth (horizontal equity).

Illustration 1If B is a shopkeeper and makes a profi t of Shs 10,000,000in a year and is taxed at 10%, which is equal to Shs 1,000,000, and C who is a cattle trader makes a profi t of Shs 10,000,000 in a year, he should also be taxed at 10%. Likewise any other person who earns an income of Shs 10, 000,000, should pay the same tax.

(ii) The contribution in tax should increase as the taxable income increases (vertical equity). The principle behind vertical equity, which is most


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applicable in income taxes, is that the burden among taxpayers should be distributed fairly, taking into account individual income and personal circumstances. Vertical equity is to be taxed proportionate to the income one earns. The strongest shoulders should carry the heaviest burden.

Illustration 2Whereas B and C in illustration 1 were taxed at 10% because both earned 10,000,000; if D earned Shs15,000,000 this person may be taxed at 15%.

4.2 Convenience

Under normal circumstances, a taxpayer should not undergo undue difficulty to pay tax. Therefore, the place, medium, mode, manner and time of payment should not be an extra burden to the taxpayer.

Illustration 3A person doing business in Tororo should not beinconvenienced to travel to Kampala to pay his/her taxes.An offi ce should be created nearby to ease the process.

4.3 Certainty

A good tax system is one where the taxaxes are well understood by the payers and collectoctors. The time and reason of payment as well as ththe amount to be paid by an individual should be wewell documented and certain or known. The tax shohould be based on laws passed by parliament.


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4.4 Economical

The administrative cost of collecting taxes should be kept as low as possible to both the collecting agent and the taxpayer. The general principle is that the cost of collection and administration of taxes to the collecting agent should not exceed 5% of the tax revenue. Likewise, the cost of compliance to the taxpayer should be as low as possible and must not be seen to hinder voluntary compliance.

4.5 Simplicity

The type ofype of tax and the method of assessment and colleccollection must be simple enough to be understood by both the taxpayers and the collectors. Complicated taxes lead to disputes, delays, corruption, avoidance and high costs of collection in terms of time and resources.

4.6 Ability to Pay

The tax should not take away so much of the income urage the performanbeing taxed as to discourage the performance or

n in the tax base. participation in the tax

5 Characteristics of TaxesIn complying with the canons of taxation, taxes may be characterised as proportional, progressive or regressive.


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5.1 Progressive TaxThis tax is structured in such a way that the tax rate increases as the income increases. Most income taxes are progressive so that higher incomes are taxed at a higher rate. A progressive tax is based on the principle of vertical equity.

5.2 Regressive TaxThis is a tax not based on the ability to pay. A regressive tax is structured that the effective tax decreases as the income increases.

5.3 Proportional TaxThis is a tax whose rate remains fixed regardless of the amount of the tax base. A proportional tax may be considered regressive despite its constant rate when it is more burdensome for low income payers than to high income payers.

6 Classifi cation of Taxes Taxes are classified as either direct or indirect.

Direct Taxes are imposed on income arisinging from business, employment, property and the be burden of the tax is borne by the individual or busbusiness entity. Examples of direct taxes include CoCorporation tax, Individual Income Tax, e.g. Pay As As You Earn, capital gains tax and rental tax.

Indirect Taxes are taxes levievied on consumption of goods and services collecteded by an Agent (Taxpayer). Notable indirect taxes include Value Added Taxes include Value Added Taxes(VAT), excise duty, impmport duty.


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Illustration 4Shopkeeper B sells bread to K for Shs 2,000, on whichKVAT has been charged. The VAT on the bread is Shs 305and is paid to the Government. Although K has paid theKShs 305 on bread that was priced at Shs 1,695, the tax is accounted to URA by B and K need not follow up theKtransaction with URA.

7 Role of Taxation(a) To finance Government re-current and e cu e t a d

development expenditure,expenditure, i.e. paying salaries for civil servants ervants and funding long term projects such as conas construction of schools, hospitals and roads.

(b(b) It can be used to regulate demand and supply in the economy in times of inflation.

(c) It encourages development of local industries and protects them against foreign competition with a view to providing employment and saving foreign exchange, by imposing high duties on competing imports. It encourages export of goods and services

pby reducing or removing tax on the export in order them more competitive in the world to make them more competitive in the world

arket.market.(d) It protects society from undesirable or harmful (d

products and industries by imposing high taxes on them, for instance excise duty on cigarettes and beer as well as environmental levy on used vehicles.

(e) To achieve greater equality in the distribution of wealth and income, the government may impose a progressive tax on the incomes and wealth of the


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rich. The revenue raised is then used to provide social services for the benefit of the society.

8 The Structure of the Ugandan Tax System

CustomsCustomsDeals with:Deals with:

Import duty.Import duty. VAT on imports.VAT on imports. Withholding tax on Withholding tax on

imports.imports.

Trade regulations.Trade regulations.

Domestic TaxesDomestic TaxesDeals with:Deals with:

VAT.VAT. Income Tax.Income Tax. Rental Tax.Rental Tax. Excise Duty.Excise Duty. Gaming Tax.Gaming Tax.

URA Board AdministrationURA Board Administration

Administers and gives effect to the laws set outin the First Schedule of the URA Act Cap 196.

Advises the Minister on revenue implications,tax administration and aspects of policychanges relating to all the taxes.

Performs such other functions in relation torevenue as the Minister may direct.

Ministry of Finance, Planning Ministry of Finance, Planning and Economic Developmentand Economic Development

Represents the executive arm in thetax administration.

Oversees the operations of the URA. Drafts government tax policies. Funds the operations of URA. Ensures proper national budgeting,

utilisation and accountability.

ExecutiveExecutive

President approves Parliaments bills

ParliamentParliament

Enacts laws thatguide URA in itsoperations.

Approves policy.


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9 Brief on E-Tax9.1 E Registration

URA, through its modernisation process, has introduced a new eTAX system to cater for registration of taxpayers, filing of returns, assessments and payment of taxes. eTAX is a name given to an Integrated Tax Administration System that provides online services to the taxpayer on a 24 hour basis.

eTAX enables taxpayertaxpayers to lodge their applications eonline througthrough the web portal, form anywhere on the globe globe as long as they are connected to the internet. Upon uploading the application on the web portal, the system will generate an e acknowledgement receipt. Note; any attachments have to be delivered to a URA, Domestic Taxes Office.

The application will be processed; the applicant will be contacted in case of any query, interview or inspection. The applicant will also be able to search

his / her application on the system using the status of his / her application on the system using earch code indicated on the e acknowledgement a search co

receipt. When the application is finally approved, the recapplicant will be issued a TIN with minimum details displayed on the Certificate of Registration. Where the application has been rejected, the taxpayer will be issued a rejection notice stating the reason(s) for rejection.


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The taxpayer will on receipt of TIN be able to log onto the web portal and create his / her own account for any further transactions.

Some of the benefits of e registration: a streamlined and less time wasting process, application easily done on the web portal. Besides registration, the taxpayer will be able to amend his / her details with URA in case of any changes. Taxpayer will always receive feedbacks on the application and this will be possible especially when accurate email addresses and telephone numbers (of the taxpayers) are indicated in the application.

9.2 E Filing

A taxpayer registered with URA for any tax type has an obligation to submit a return for the tax period defined by the respective tax law. URA has facilitated the taxpayer to fulfill this obligation by introducing electronic filing in eTAX.e

The taxpayer can obtain a return from the web porportal (http://ura.go.ug), save a template on any sy storage devise, take time to fill in the return and vavalidate the return before they finally upload it on thethe web portal. If the upload is successful, the taxpaypayer will receive an auto generated e-acknowledgemement receipt which is evidence of submission. In casease of any problems in filling the respective returns, ds, do not hesitate to send an email about the challenenge to URA on the email


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address; [email protected] or call the toll free lines.

In case there are errors in the return detected by the system, the taxpayer will be given a chance to amend the errors when he/she is issued a Return Modified Advise Notice.

The return must be submitted by the due date to avoid penalties for late filing and it must also be submitted for each tax period to avoid estimated assessments that arise out of non submission of returns. In case ubmission of returns. In case the taxpayer is unabr is unable to submit a return on time, he or she can he can apply for the extension of time to submit a rea return late using an application form for late filing also found on the web portal.

Some of the benefits accruing from e-filing are that the return process has been clearly separated from the payment process and the taxpayer can now file returns before/ after making the payment, or make the payment before/ after filing the return

9.3 mentE Payment

A taxpayer required to make payments to URA for any A tatax type can do so using the new e payment process. All the taxpayer needs to do is to go onto the URA web portal (http://ura.go.ug), access the payment registration slip, register the payment and go to the bank to make the actual payment over the counter. The taxpayer in future may even not need to go to the bank as such facilities like internet / online banking


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e payment will apply to all payments made to URA including customs, NTR and agency fees.

Benefits accruing from e payment are that the taxpayer can utilise the service on a 24 hour basis, the taxpayers costs of movement between his/her premises and URA or the bank are reduced; and thus saving time. Taxpayers can also monitor the status of their payments online through the web portal.

Part B Income Tax 1717

Part B

Income Tax

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1 IntroductionThis is tax imposed on a persons taxable income at specific rates. A person includes an individual, company, partnership, trustee, Government and sub divisions of Government.

Income tax is charged on every person who has pchargeable income for each year of income. Chargeable or each year of income. Chargeable income is derived derived from three main types of income, namely; buely; business, employment and property.

IIncome tax is administered under the Income Tax Act (1997) Cap 340.

2 Defi nition of Key TermsA Person includes an individual, a partnership, a trust, a company, a retirement fund, a government, a political subdivision of government, and a listed institution.

Chargeable Income is the gross income of a person for the year less total deductions allowed under the fIncome Tax Act Cap 340 for the year.

Gross Income of a person for a year of income is the total amount of business income, employment income and property income other than exempt income. In case of resident persons, Gross income is a persons income from all geographical sources; and in the case

Income Tax


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of non-resident persons, gross income includes only the income derived from Uganda.

Residency for tax purposes is defined in relation to individual, partnership and Company as follows:

A resident individual is a person who has a permanent home in Uganda; or is present in Uganda: for a period of 183 days or more in any twelve (12) months period that commences or ends during the year of income; or during the year of income and in each of the two preceding years of income, for periods averaging 122 days in each such year of income; or is an employee or official of the government of Uganda posted abroad during the year of income.

A resident company is one which:

(a) Is incorporated in Uganda under the laws of Uganda

(b) Is managed or controlled in Uganda at any time during the year of income.

(c) Undertakes a majority of its operations in Uganda da during the year of income.

A resident partnership is one where any of the papartners was a resident person in Uganda during thethe year of income.

Year of Income means the period of of twelve months ending on June 30, and includes a sa substituted year of income and a transitional year ofof income.

A substituted year of income is a period of 12 months ending on a date otother than June 30.

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A transitional year of income is a period of less than 12 months that falls between the persons previous accounting date and a new accounting date. This results from a change in a persons accounting date.

3 ScopeThe scope of liability to tax depends on a persons residence status.

Income tax is imposed on Income from business, employment and property.erty.

For a resident pedent person, income tax is charged on gross income fme from all over the world. The tax for a non-resresident person is only charged on income derived from sources within Uganda.

4 Sources of Income4.1 Business Income

Business is defined in the Income Tax Act to include vocation or adventure in any trade, profession, vocation or adventure in the

de.nature of trade.

Business income means any income derived by a Busineperson in carrying on a business and includes the following amounts, whether of a revenue or capital nature:

The amount of Gains or losses from the disposal of business assets such as land and buildings.

Any amount derived by a person as consideration for accepting a restriction on the persons capacity to


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carry on business. For example if Mama Rhoda gives Senkubuge Shs 100,000 to relocate his shop to another area, the Shs 100,000 becomes business income to Senkubuge.

The gross proceeds derived by a person from the disposal of trading stock, i.e. sales.

The value of any gifts derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship.

Interest derived by a person in respect of trade receivables or by a person engaged in the business of banking or money lending.

Rent derived by a person whose business is wholly or mainly the holding or letting of property.

The definition of business is therefore inclusive rather than specific such that there can be business which does not arise from trade, profession vocation or adventure in the nature of trade.

4.1.1 TradeTrade has the same meaning as commerce and it it involves buying and selling or bartering of googoods. There are many exceptions to this general defiefinition but the following elements are crosscutting:ng:

The element of profi t The regularity of the transactions. The arrangements and effort, and, Compliance with statutory obligations made to make

the transactions work.

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Any of the above may determine whether a trade is carried out. However, depending on the facts of each case, the existence of these conditions could generally lead to the likelihood of a trade.

4.1.2 Adventure in the Nature of Trade This refers to transactions where profits arise from activities such as gambling, speculative dealings in commodities, single or one off transactions or unconventional transaction e.g. smuggling.

The definition of an adventure in the nature of nture in the nature of trade may appear somepear sometimes to overlap with trade, but if either iither is proved, the requirements for business definitfinition are satisfied.

The following characteristics may point to an adventure in the nature of trade.

Profi t seeking. The way in which the asset was acquired. The nature of the asset. Modifi cation of the asset prior to sale or use. Interval between purchase and sale of the asset. Way in which the sale is effected. Number of transactions. Existence of trading interest in the same fi eld. Method of fi nancing the transaction.

4.1.3 ProfessionThis is a paid occupation especially one which requires advanced education and training, e.g. architecture, accounting, law and medicine.


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4.1.4 VocationThis is how one passes ones life when earning a living. More often, it is referred to as a special calling and qualification for a certain kind of work especially for social or religious work. It can thus be used to bring within the scope of income tax any form of regular and continuous profit earning, which does not fall within the categories of trade, business, profession or employment. Earnings from activities related to religion can fall in this category.

Business income is considered if it is derived during the year of income. Derive has been judicially determined to be equivalent to accrue or arising, which also relates to the source of income.

4.1.5 Capital GainsCapital gains arise from the disposal of a business asset that is not a depreciable asset, such as land and buildings. A disposal of an asset occurs when an asset has been sold, exchanged, redeemed, distributed, transferred by way of gift, destroyed or lost by the taxpayer. The he Capital gain is the excess of the consideration over thr the cost base of the asset. Conversely, there may alsolso be a loss when the cost base of the asset is higher ter than the consideration received for the business asseset.

Cost base of an asset is the amount papaid or incurred by the taxpayer in respect of thehe asset, including incidental expenditures of a capitaital nature incurred in acquiring the asset, and includeudes the market value at the date of acquisition of anany consideration in kind given for the asset.

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Capital gains are included in the gross income of the taxpayer and assessed as a business income.

4.2 Employment Income

Any income derived by an employee from any employment, whether past, present or in future, including the value of any benefit, advantage or facility granted to an employee constitutes employment Income. An amount or benefit is derived in respect of employment if it is provided in respect of past, present or prospective employment. It also includes oyment. It also includes an amount or benefit provinefit provided by a third party under an arrangementgement with an employer or an associate of the empe employer; and it does not matter whether it is paid toto the employee or to his associates.

Employment is regarded to exist where there is a contractual relationship between master and a servant for a pay.

Employment refers to:

Position of an individual in employment of another person.

Directorship of a company. A position entitling the holder to a fi xed or ascertainable

remuneration.

Holding or acting in a public offi ce. It is important to distinguish between an employee and an independent contractor. As a general rule, an individual who does not satisfy the definition above automatically becomes an independent contractor.


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Employer means a person (individual or corporate) who employs/remunerates an individual.

An Employee is an individual engaged in an employment

4.2.1 Employment IncomeAccording to the Income tax Act cap 340, Employment income includes:

Wages, salary, leave pay, payment in lieu of leave, overtime pay, fees, commission, gratuity, bonus, allowances (entertainment, duty, utility, welfare, housing, medical, or any other allowances).

The value of any benefi ts in kind provided by/on behalf of the employer to the employee.

Amount of private/personal expenditure discharged or reimbursed by the employer.

Employment terminal and retirement benefi ts. Insurance premiums paid by the employer for the

employee and/or his dependants.

Payments in respect of change of employment/contract terms.

Discounts in shares allotted to an employee and any gain derived on disposal of a right or option to acquire shares under an employee share acquisition scheme.

Note: It should be noted that all or any of the above incombination comprise employment income.

4.2.2 Benefits in KindA benefit in kind is the facilicilitation not by way of cash by an employer to an employee as part of past, present mployee as part of past, present

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or future employment terms. Such benefits need not have been in the written employment terms.

Taxable non-cash employment benefits include:

Private use of an offi cial motor vehicle. Provision of domestic servants and utilities. Meals, refreshment, entertainment. Relief of debt obligations/interest. Provision of property by employer to employee (at

non-arms length terms).

Provision of residential accommodation. Any other benefi ts as determined by the Commissioner

General.

4.2.3 Valuation of Benefits in KindAs a general rule, the value of a benefit in kind is the fair market value of the benefit on the date it is taken into account for tax purposes less any amount paid by the employee for the benefit.

1. Motor Vehicle Where a benefit provided by an employer to an employee consists of the use or

for use of a motor vehicle wholly or availability for use of a motor vehicle wholly or rtly for the private purposes of the employee, partly for

the value of the benefit is calculated according to ththe following formula:(20% A BB//CC) Dwhere,A is the market value of the motor vehicle at the

time when it was first provided for the private use of the employee.


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B is the number of days in the year of income in which the motor vehicle was used or available for use for private purposes by the employee for all or a part of the day.

C is the number of days in the year of income.D is any payment made by the employee for the

benefit. 2. Domestic Assistants (housekeeper, driver,

gardener or other domestic assistant) The benefit is the total employment income paid to the domestic assistants, reduced by any payment made by the employee for the benefit.

3. Meals, refreshment or entertainment The benefit is the cost of the meals, etc. to the employer less any payment by the employee.

4. Utilities (Electricity, Water, Telephone, Internet) The benefit is the cost of the utility to the employer less any payment by the employee.

5. Low interest on loans exceeding one million shillings The benefit is the difference between n the interest paid by the employee and the intereterest payable using the statutory interest rate (Ba(Bank of Uganda discount rate at commencemenment of the year of Income).

6. Debt waiver The benefit is the e amount of the debt waived.

7. Transfer or use of property or provision of services (Furniture and td transportation) The benefit is the market vvalue of the property or services less any paymments by the employee.

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8. Accommodation or housing other than by way of reimbursement, discharges or allowances Where a benefit provided by an employer to an employee consists of the provision of accommodation or housing, the value of the benefit in kind is the lesser of:(a) the market rent of the accommodation or

housing reduced by any payment made by the employee for the benefit; or

(b) 15% of the employment income, including the amount referred to in paragraph (a), paid by the d to in paragraph (a), paid by the employer to thyer to the employee for the year of income in whin which the accommodation or housing was provided.

9. Any other benefi t The benefit is the market value of the benefit less any payments by the employee.

4.2.4 Employees ReliefThis refers to gains or income that is not included in the chargeable income of the employee and therefore not taxable on the employee:

employees income that is below the taxable (a) The employeethreshold, currently at Shs 130,000 per monththres

(b) Pension.(c) Discharge or reimbursement of medical expenses

actually incurred by the employee. (d) Life insurance premiums paid by a taxable

employer (company/individual) for the benefit of the employee.


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(e) Expenses incurred by the employee; discharge or reimbursement for the employee on official duty of the employer.

(f) Meals and refreshments or value thereof provided to all employees at equal terms.

(g) Employers contribution to a retirement fund for the benefit of the employee.

(h) Any non-cash benefits whose value is less than Shs 10,000 a month.

(i) Relief of 25% on terminal benefits for employees who have served the employer for at least 10 years.

(j) Passage costs. (k) The employment income of an expatriate employee

in a listed Institution, under a technical assistance agreement subject to the Ministers approval.

(l) Official employment income of persons employed in the armed forces, Uganda Police Force and Uganda Prisons. It excludes persons serving there in civilian capacity.

(m) Employment income of Ugandans posted ed to work in Ugandan diplomatic missions abroadoad.

(o) Employment income of persons emplmployed by EADB.

4.2.5 Collection of Tax from Employment nt IncomeThis is collected on a monthly basissis through a system known as Pay As You Earn (PAYAYE)

4.2.5 Current Monthly PAYE Taxax RatesThe Income Tax Act obliges employers while making liges employers while making payment of employment income in any month to ment income in any month

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withhold tax at the prescribed withholding PAYE tax rates and pay the tax withheld by the 15th day of the following month to the URA.

Monthly emolumentsMonthly emoluments Tax Rate (Bracket)Tax Rate (Bracket)1. Not exceeding Shs

130,000.Nil

2. Exceeding Shs 130,000 but not exceeding Shs235,000.

10% of the amount by whichchargeable income exceeds Shs130,000.

3. Exceeding Shs 235,000 but not exceeding Shs410,000.

Shs 10,500 plus 20% of the amountby which chargeable incomeexceeds Shs 235,000.

4. Exceeding Sding Shs 410,000.Shs 45,500 plus 30% of the amountby which chargeable incomeexceeds Shs 410,000.

4.2.6 Employers ObligationWithhold tax from employment income: to deduct the correct tax from the employees total employment income at the time of effecting payment to every liable employee.

Payment y: to pay to URA the total tax by the 15th onth immediately following the month day of the month immediately following the month

hich employment Income was paid. in which em

Accountability: to account for the tax deducted from every employee on a monthly basis to Uganda Revenue Authority.

Maintenance of Employees Records: to maintain records and keep them for inspection by URA on demand for at least five years.


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4.2.7 Employees ObligationEmployees deriving income from more than one source are required to complete an end of year return to declare:

Total income from all sources, including business income.

Total taxes paid at source such as PAYE and withholding tax or provisional tax. This excludes presumptive tax and rental tax paid by such employee.

Tax payable.4.2.8 Employees Rights

An employee:

Is not required to furnish a PAYE return if tax is fully deducted and paid at source.

Is entitled to claim refund of over-paid tax where applicable.

Is entitled to accountability for all taxes deducted and paid at source by the employer.

4.2.9 What happens if Tax is Not Paid?An employer who fails to withhold and pay the he tax as required by law is personally liable to pay thy the tax together with any penal tax and interest thethereon. He may however recover it from the employeoyee.

PAYE worked examplesIllustration 1Acul Ocolo is employed as a security guard in Karacen(U) Ltd. He earns a monthly salary of Shs 125,000.

Required: Is Karacen (U) Ltd obliged to deduct PAYE U) Ltd obliged to deduct PAYEtax from Acul Ocolo?

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Solution No, because Acul Ocolos monthly salary is less than the threshold so his salary does not attract PAYE.

Illustration 2Acul Ocolo is an employee of company Y. He earnsthe following monthly income: a salary of Shs 200,000; travelling allowance of Shs 50,000 and medical allowance of Shs 30,000.

Compute his monthly PAYE tax liability.

Solution Employment Income:Salary 200,000Travelling allowance 50,000Medical allowance 30,000Totall 280,000

Use rates in the third bracket, i.e.

Exceeding Shs 235,000but not exceeding Shs 410,000.

Shs 10,500 plus 20% of theamount by which chargeable income exceeds Shs 235,000.

Step 1Shs 280,000 - 235,000 .......................................................... 45,000

Step 220% 45,000 .............................................................................. 9,000

Step 39,000 +10,500 .........................................................................19,500PAYE ......................................................................................... 19,500


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4.3 Property Income

4.3.1 DefinitionProperty Income is defined in the Income Tax Act as;

(a) Any dividends, interest, natural resource payments, rents, royalties and any other payments derived by a person from the provision, use or exploitation of property.

(b) The value of any gifts derived by a person in connection with the provision, use or exploitation of property.

(c) The total amount of any contribution made to a retirement fund during a year of income by a tax exempt employer.

(d) Any other income derived by a person but does not include an amount which is business, employment, or exempt income.

(e) Any amount included in business income of the person under any other section of the Income Tax x Act.

Note: Rent is classifi ed under business income if its derivedby a person whose business is wholly or mainly the holdingor letting of property. However, if rent is derived by theperson whose business is not wholly or mainly the holdingor letting of property, then it is classifi ed under propertyincome. For example if a company receives rent from itsproperties, then it is classifi ed as property income becauseit is not in the business of holding or letting of property.

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4.3.2 Individual Rental Income TaxTax under this head applies to resident individual persons. The law provides that individual rental income is segregated and taxed separately as though it were the only source of income for the taxpayer.

Rental income is income earned by an individual from letting out immovable property in Uganda (land and buildings). For income tax purposes, it does not matter whether the building is let out as a residence or for commercial use.

The rental income of a residme of a resident individual for the year of income is chae is charged to tax at the rate of 20% of the chargeabargeable income in excess of the tax free allowance oror threshold of Shs 1,560,000 per annum. However, in determining the tax due, a fixed deduction of 20% per annum is allowed on the gross annual rental income of resident individuals.

The rental income of a non-resident individual for the year of income is charged to tax at the rate of 15% on gross earning from Uganda.

Computation of tax In computing the tax, the In computing the tax, the ng are considered:following are con

Gross on all rents earned during the year. Deduct 20% statutory expenses on the gross rent. Deduct tax free allowance of Shs 1,560,000 to arrive at

the chargeable rent income.

Apply a rate of 20% on the chargeable income to get the tax.


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Illustration 4Acul Ocolo earned annual rent of: Shs 1,200,000 from ahouse in Kitintale, Shs 800,000 from a house in Kabale and Shs 500,000 from a house in Lyantonde.

Solution The rental tax is computed as follows: Gross rental income 2,500,000 Less provision for expenditure (500,000) and loss; 20% 2,500,000 Chargeable rental income 2,000,000 Lessthe threshold 1,560,000 Net chargeable rent 440,000 Rental tax due: 440,000 20% Shs 88,000

Taxpayers obligation

A taxpayer is required to:

Complete a return of rental income for a year of income with supporting agreements where available or rental receipts issued to tenants(s) during the year.

Declare ALL your sources of rental income in FULL for a given year of income. The year of income is from July to June.

Submit (furnish) the Provisional and annual return to Uganda Revenue Authority, through the nearest local

URA Offi ce, within three months for the provisional return i.e. not later than 31st September; and six months for the annual return after the end of the relevant year of income, i.e. not later than 31st December

Where a provisional return has been fi led, pay quarterly the rental income tax by the appropriate due date.

Entitlement to tax credit A tax credit may arise if tax has been withheld duriuring the year of income.

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5 Exempt IncomeCertain incomes by law are not taxed and they are referred to as exempt income. Exempt income is listed in section 21 of the Income Tax Act.

6 Determination of Tax liabilityThe basis for determination of Income tax liability for resident persons is the gross income of the person preduced by allowable deductiable deductions and any foreign income tax paid x paid on foreign income included in the gross incos income referred to as a foreign tax credit, not exceexceeding the Ugandan income tax payable on the foreign source income for that year.

Allowable deductions are expenditures and losses incurred when deriving chargeable income. The general rule is that for expenditure to be allowed it must have been incurred to produce the income that has been declared as gross income. Where the expenditure is only partly incurred in the production

luded in the gross income, the Income of income included in the gross income, the Income Act provides for apportionment such that the Tax Act prov

deduction allowed is only to the extent to which it deduwas so incurred. Accordingly, the general features of deductions are:

(a) There must be an expenditure or loss(b) The expenditure or loss must be incurred by a

person during the year of income. (c) The expenditure or loss must be incurred in the

production of income included in gross income.


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The Income Tax Act lists, under sections 22 38, a number of expenditures and loses that are allowable deductions. For instance, Interests, bad debts, repairs, depreciation, initial allowances, start up costs, meals, etc.

Capital expenditure e.g. purchase of a motor vehicle is not in itself an allowable deduction but it is allowed capital deduction for its depreciation. Likewise all depreciable assets are allowed a deduction as specified in the Sixth schedule of the Income tax Act. Capital allowances are thus treated as operating expenses and deducted in arriving at chargeable income or profits chargeable to tax. Deductions allowed on capital expenditure include the following categories:

1. Depreciable assets varies as per 6th Schedule of the Act

2. Initial allowance 50% and 75% based on areas3. Initial allowance for buildings 20%4. Industrial building 5% straight line depreciation

allowance5. Start up costs 25% per year for four years 6. Costs of intangible assets actual cost7. Farm works deductions 20% for five ve years 8. Deductions on mineral explorationion expenditure

all capital expenditureCapital allowances are calculated ed for a year of Income and are granted as a deduction n when the capital asset is put to use.

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7 Persons assessable to Tax7.1 Taxation of Companies

Income tax on companies is imposed under the Income Tax Act on every person who has chargeable income for any year of income.

A company is defined as a body of persons corporate or unincorporate, whether created or recognised under the law in force in Uganda or else where and includes a unit trust, but does not incluoes not include any other trust or a partnership. Accop. Accordingly, limited liability companies, companiempanies limited by guarantees, associations, NGOs, etc.etc. are taxed under the company taxation regime.

Based on the above definition, even non-resident companies are assessable (subject) to tax in Uganda on their income that is derived from Uganda while resident companies are subject to tax on their worldwide income.

Income tax paid by companies is referred to as dividuals pay individual incomecorporation tax. (Individuals pay individual income

tax).

7.1.1 Rate of Tax Applicable to Companies RatThe current rate of tax (2010) applicable to companies is 30%. The chargeable income for both resident and non-resident companies is taxed at this rate.


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7.1.2 Taxable Income of CompaniesIn deriving the chargeable income, the company is granted the applicable deductions specified in the Income Tax Act.

Illustration 5Computation of chargeable incomeAcul Ocolo Ltds profi t and loss account for the year of 30 June 2006 was as follows:

Sales.....................................................................1,430,000,000Less cost of sales...............................................1,340,000,000Gross Profi t ............................................................. 90,000,000

Other IncomeBad debt recovered (previously written off) .... 2,000,000Profi t on sales of furniture ........................................200,000 92,200,000

Less: Operating expensesSalaries and wages .................................................. 11,900,000Staff meals (canteen equal terms)......................... 3,100,000Telephone ...................................................................3,000,000Loss on sale of motor vehicle ................................1,204,000Electricity ....................................................................2,900,000General expenses .....................................................1,800,000Trading license .............................................................. 500,000Generator expenses ................................................ 1,100,000Stationery .................................................................. 2,300,000Directors remuneration ...................................... 20,000,000Bad debts written off..............................................f 2,000,000Rent and rates ...........................................................3,200,000Repairs and maintenance ....................................... 2,500,000Subscriptions and donations ..................................1,000,000Depreciation ............................................................. 6,000,000Legal and accountancy fees ....................................1,400,000Net Profi t................................................................ 28,296,000

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Notes

General expenses include the following:Travelling expenses of staff (van) and directors ......1,000,000Entertaining suppliers ......................................................... 800,000

Repairs and maintenanceRedecorating existing premises ........................................500,000Renovations of premises to remedy the Disrepair by the previous occupant ...............................................2,000,000

Legal and accountancy chargesDebt collection services ......................................................200,000Staff service agreements ...................................................250,00045 year lease on new premises .......................................150,000Audit and accountancy .......................................................500,000Consultancy directors wife project ................................ 300,000Total ..................................................................................... 1,400,000

Subscriptions and donations include:Donation to political party ................................................500,000Subscription to UMA .......................................................... 300,000Fees to trade fare ................................................................200,000Total ..................................................................................... 1,000,000

On 1 July 2005, the tax written down values of plant and machinery were as follows:Class 1 .................................................................................. 1,400,000Class II ................................................................................12,600,000Class IV ............................................................................48,000,500

The company purchased the following assets inthe year:Computer 1 August 2005...............................................2,500,000Furniture 1 December 2005 ......................................10,400,000


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Computation of tax

Acul Ocolo Limited Tax Computation 2006Net Profi t per accounts 28,296,000

Add Depreciation 6,000,000Loss on sale of m/v 1,204,000Entertaining suppliers 800,000Repairs and maintenances 2,000,000Legal and accountancy fees 450,000Subscription and donation 500,000 10,954,000

Less Profi t on sale of furniture 200,000Depreciation allowance 18,400,100 (18,600,100)

Chargeable Profi t 20,649,900Tax at 30% 6,194,970

The amounts above are disallowed due to the following:

Depreciation of Shs 6,000,000 is according to the Companys policy

Losson sale of M/V Shs 1,204,000 is of a capital nature Entertaining suppliers Shs 800,000 was insured outside

the production of income

Legal and accountancy fees relate to Shs 150,000 lease which is capital and Shs 300,000 consultancy for wifes project not related to the business

Donations to political party Shs 500,000 is not incurred in the production of income.

The amounts allowed as deductions are due to: Profi t on sale of furniture Shs 200,000 is capital in nature, its profi t is not taxable

Depreciation allowance is the capital deductions calculated at the specifi ed rates under the Income tax Act.

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7.1.3 Obligations of CompaniesCompanies have the following obligations to fulfill:

(a) Submission of provisional tax estimates Companies are required to submit provisional tax estimates within the first six months from the beginning of their accounting period. The estimated tax is payable in two installments as follows:

First installment: by the end of the sixth month from the beginning of the accounting period.g of the accounting period.

Second instnd installment: by the end of the twelfth monmonth from the beginning of the accounting period.

(b) Submission of the returns Companies are required to submit their returns by the end of sixth month from the end of the accounting period to which the return relates.

Note: All companies are now required to submit self-assessment returns. This means that they are required toassess themselves and their assessment will be deemed tobe the assessment by the Commissioner General.

(c)( Record keeping Companies, just like all the other taxpayers, are required to keep records pertaining to their business transactions for five years after the end of the year of income to which the record or evidence relates.


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7.2 Taxation of Individual Persons

The chargeable income of a person for a year of income is the gross income of the person for the year less total deductions allowed under the Income Tax Act for the year.

Illustration 6Acul Ocolo earned income from different sources for the year 2006 as indicated below:Business income .................................................... 25,000,000Employment income ...............................................2,400,000Property income (interest from Stanbic Bank) ...500,000Dividend from Shell (U) Ltd ..................................... 275,000Interest on treasury bills .......................................... 150,000In addition, he incurred expenses amounting to Shs 1,200,000 to earn the income.

Determine Acul Ocolos gross income and chargeable income.

SolutionGross income includes all income from all sources less tax exempt incomeBusiness income .............................................................. 25,000,000Employment income .........................................................2,400,000Property income (interest from Stanbic Bank)..............500,000Dividend from Shell ..............................................................l 275,000Interest from treasury bills ................................................. 150,000Gross income................................................................28,325,000

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NoteInterest on treasury bills taxed separately...............150,000Dividend separately taxed ............................................275,000Interest income separately taxed .............................. 500,000Employment income ..................................................... 925,000Taxable income ......................................................... 27,400,000Less expenses ........................................................... (1,200,000)Chargeable Income .................................................. 26,200,000

Where chargeable income is Shs 26,200,000 for AculOcolo as above, tax is calculated as follows;Shs 26,200,000 falls in the top band of the tax rate for individuals in the Third Schedule of the Income Tax Act.Deduct Shs 4,920,000 from Shs 26,200,000 to get Shs21,280,000Tax on Shs 4,920,000 is Shs 546,000Charge to tax Shs 21,280,000 at 30% to get Shs 6,384,000Add Shs 546,000 to Shs 6,384,000 to get tax payable by Acul Ocolo, which is Shs 6,930,000Deduct tax withheld at source (PAYE) 84,000 from total tax of 6,930,000, giving Shs 6,846,000 as tax payable

Tax determined separately:Treasury bill interest 150,000 15% ...........................22,500Tax on interest 500,000 15% .....................................75,000Tax on dividend 275,000 15% .................................... 41,250Total tax separately paid...............................................138,750GRAND TOTAL OF TAX ................ (6,846,000 + 138,750)

6,984,750

7.3 Taxation of Small Business Taxpayers (Presumptive Tax)

The concept of small businesses in taxation was developed to accommodate low income taxpayers who would ordinarily find it difficult to prepare


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formal accounts. The preparation of these accounts would usually require engagement of a professional accountant which is costly.

In order to address this challenge, the Income Tax Act provides for an arrangement of taxing small businesses based on gross turnover or total sales. This is commonly referred to as presumptive tax.

7.3.1 Who is a Small Business Taxpayer?For income tax purposes, a small business taxpayer is a resident taxpayer whose gross turnover from all businesses owned by such a person in a year is more than five million shillings but does not exceed FIFTY MILLION SHILLINGS.

The term TURNOVER refers to ones total sales in a Ryear.

However, persons in the following business activities are excluded from presumptive tax:

Medical practice Dental practice Architectural service Engineering service Accounting and audit practices Legal practice Any other professional services Public entertainment services Public utility service Construction service

Note: Persons outside the presumptive scheme arerequired by law to fi le provisional and fi nal income taxreturns and be assessed to tax based on chargeable incomefor the year.

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7.3.2 Determination of Sales for a Small Business TaxpayerIn order to benefit from the presumptive tax regime, a taxpayer MUST keep records of his or her daily sales which is the basis for determining the tax bracket under which he or she falls.Daily sales may be recorded as follows:DateDate Item SoldItem Sold Sales (Shs)Sales (Shs)1/1/2010 groceries 50002/1/2010 10,000

Monthly Totly Total 15,000

Keeping this kind of record of daily sales would help the trader to ascertain the monthly, quarterly and annual total sales on which tax payable would be based. This record will also assist the trader during inspection by URA staff to determine a correct tax payable.

7.3.3 Return of Gross Turnoverermine the tax payable, the presumptive In order to determine the tax payable, the presumptive

ayer is required to file a provisional return of gross taxpayer is returnover within three months; and a final return of turnthe gross turnover of the previous year of Income.Where such a return is not filed, the tax payable is estimated based on best of judgment of the Commissioner.

Key features of the presumptive tax regime1. The tax is computed on the basis of a GROSS

TURNOVER; and is a final tax.


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2. No deductions are allowed in respect of any expenditure or losses.

3. No tax credit is allowed to be offset against the final tax except in the following cases:(a) A tax credit arising out of withholding on

receipt included in the gross turnover of the taxpayer.

(b) Any provisional tax paid against the taxpayers gross turnover during the year of Income.

7.3.5 Computation of the Tax Liability for Small Business TaxpayersThe tax payable is calculated and determined basing on the lower of one percent or the prescribed tax amount for turnover above Shs 20 Million as illustrated in the table below. Turnover below Shs 5 million is not subject to tax and turnover from Shs 5 million to 20 Million is taxed at a fixed sum of Shs 100,000.

The entire tax rate structure is as follows:

Gross TurnoverGross Turnover Tax PayableTax PayableGross turnover above Shs5 million and not exceeding Shs 20 million a year.

Shs 100,000

Gross turnover above Shs20 million but not exceeding Shs 30 million.

Shs 250,000 or 1% of grossturnover, whichever is lower.

Gross turnover above Shs30 million but not exceeding Shs 40 million a year.

Shs 350,000 or 1% of the gross turnover, whichever is lower.

Gross turnover above Shs40 million but not exceeding ng Shs 50 million a year.

Shs 450,000 or 1% of thegross turnover, whichever is lower.

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The tax is payable in four equal installments during the year of Income.

Illustration 7Take an example of a taxpayer with Shs 22 Million asgross turnover.This taxpayer falls in the Income bracket of Shs 20 30 Million. The tax payable is the lower of 1% of turnover or Shs 250,000.1% of the Shs 22 million = 220,000; therefore tax payable is Shs 220,000 which Is lower than Shs 250,000.

Illustration 8Take an example of a taxpayer with Shs 28Million as grossturnoverThis taxpayer also falls in the Income bracket of Shs 20 30 Million. The tax payable is the lower of 1% of turnover or Shs 250,000.1% of the Shs 28 million = 280,000; therefore tax payable is Shs 250,000 which Is lower than Shs 280,000.

7.3.6 Election (Option) not to be under Presumptive Taxwho would ordinarily fall under the A taxpayer who would ordinarily fall under the

mptive tax regime may opt out by notifying the presumptive tCommissioner in writing to be assessed on chargeable Comincome. The chargeable income method involves the preparation of financial statements by the taxpayer. Such a taxpayer is required to submit the election notice together with their Annual Income Tax Return for that year by the due date of filing such return of income.


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8 Income Tax RegistrationEvery taxpayer i.e. any person who is in business is expected to register with URA for tax purposes. Registration enables URA to issue the taxpayer with a Tax Identification Number (TIN) which is the key identifier of the taxpayer.

In order to be registered, the following are required:

8.1 Resident/ Non-Resident Limited Company

(i) A copy of the certificate of incorporation from the Registrar of companies.

(ii) Company Form 7 certified by the registrar of companies.

(iii) Completed non-Individual application form.(iv) Completed individual application form for each

Director.(v) An introduction letter, if registration is to be done

by a person other than directors/subscribers/rs/proprietor.

(vi) A copy of the Board resolution, whewhere the shareholders are different from the DirDirectors.

(vii) A copy of the tenancy agreement/ rt/ rent payment receipt. In case of owner-occupupied premises, a letter to that effect should be ae attached.

(viii) Requirement of referees incincluding their Bankers.

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8.2 Sole Proprietor (Individual)(i) Copy of Identification documents e.g. Drivers

permit, voters card, passport, Employer ID, etc.(ii) A fully completed individual application form

8.3 Partnership(i) A copy of the certificate of registration from the

registrar of companies.(ii) A copy of the Partnership Deed.(iii) Fully completed nonindted nonindividual application form

for the parthe partnership.(iv) Fuv) Fully completed individual application form for

each partner.(v) A copy of the tenancy agreement/rent payment

receipt. In case of owner-occupied premises, a letter to that effect should be attached.

8.4 Non-Governmental Organisations (NGOs)(i) A copy of the registration certificate from the

NGO Board.completed non-individual application (ii) Fully completed non-individual application

form.form.(iii) Fully completed individual application forms in (i

case NGO has Directors.(iv) A copy of the constitution of the NGO.(v) Fixed place of abode. This could be evidenced

for example by copy of the tenancy agreement or rent payment receipt. In case of owner-occupied premises, a letter to that effect should be attached.


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9 Returns of IncomeA return of income is a declaration made on a prescribed form to the Commissioner on which income earned or a loss made during the year is declared. It is a legal document which must be signed and dated by the taxpayer or by the taxpayers appointed agent and includes a declaration that the return is complete and accurate.

9.1 Who is Eligible to File a Return of Income?

(i) Every tax payer who has chargeable income, other than a resident individual whose chargeable income is below the threshold.

(ii) In the case of a resident company, a return should be filed for all global income. The threshold does not apply in this case.

(iii) A partnership is also required to file a return of income in its own right as if it pays tax.

9.2 Who is not required to fi le a Return of Incocome?

(i) A non-resident person whose income ie is derived from sources in Uganda and is s subjected to withholding tax as a final tax.ax. Such income comprises international paymements or payments to non-resident public eentertainers, sports persons, contractors or proprofessionals.

(ii) A resident individual whwhose gross income consists exclusively of employment income derived from loyment income derived from

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a single employer and from which tax has been withheld under the PAYE system.

(iii) A resident individual whose total chargeable income for the year of income is below the threshold.

9.2.1 Provisional ReturnA provisional return is a form prescribed by the Commissioner on which estimated tax (provisional tax) is declared. Estimated tax is payable by a person who derives or expects to derive any income during derive any income during the year of income, othome, other than exempt income and which will ill nonot be subjected to withholding tax at the source urce as a final tax.

Estimated tax by a company is paid in two installments on or before the last day of the sixth and twelveth months of the year of income.

Estimated tax for an individual is payable in four installments on or before the last day of the third, sixth, nineth and twelveth month.

payer is required to file a provisional A provisional taxpayer is required to file a provisional return.

9.2.2 Failure to File Provisional ReturnsFThe Commissioner has powers to estimate a taxpayers gross turnover or chargeable income for a year of income for which the taxpayer has failed to file a provisional return. The estimate is based on the Commissioners best of judgement.


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9.3 Due date for fi ling Returns

9.3.1 Provisional ReturnA provisional return by an individual should be filed within three months after commencement of the year of income. In the case of non-individuals (companies), a provisional return should be filed within six months after commencement of the taxpayers year of income.

Return of Income, i.e. fi nal. The return of income for both individuals and non-individuals including rental income tax, should be filed within six months after the taxpayers year of income.

Note: It should be remembered that a return of incomeby individuals and non-individuals is a self assessmentreturn i.e. the return fi led is deemed to be an assessmentof chargeable income issued by the Commissioner on thedate the return is fi led.

9.3.2 Information to be Included in a Return of IncomeA person in business is required to include in tn the return a statement of income and expenditure, re, assets and liabilities, and any information that comcomprises a complete set of financial statements for aor a given year of income. A tax computation showowing how the chargeable income and the tax payabyable was arrived at should also be attached.

Where a person (other than thethe taxpayers employee) is engaged to assist in making a return, he/she must make g a return, he/she must make a declaration that the financial statements included financial statements included

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in the return are prepared on the basis of books of accounts and business records properly maintained, and that they reflect all the transactions.

9.3.3 Cases of Death, Bankruptcy, Cessation, Liquidation, etc.During any year of income, where a taxpayer has died, is bankrupt, wound up, gone into liquidation, is about to leave Uganda indefinitely or the Commissioner considers is appropriate, such a taxpayer may be required to file a return by a specified date.specified date.

9.3.4 Failure to File a Rile a ReturnIf a liableliable person fails to furnish a return as required thethe Commissioner may, in writing, appoint a person to prepare and file the return. This return will be treated as if it were made by the person who should have filed it.

9.3.5 Unsatisfactory Return of IncomeThe Commissioner may require any person whose return is not satisfactory to furnish further information.

pens where the return is incomplete This normally happens where the return is incomplete rect or lacks supporting information.or incorrect or la

9.3.6 Late Filing of a ReturnLaA return is said to be late if it is filed after the due date for filing. A person who fails to file a return by the due date is penalised. The penalty is the greater of 2% of tax assessed or ten currency points (Shs 200,000) per month for the period the return has been outstanding.


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9.3.7 Extension of Time to File a Return of IncomeA taxpayer may in writing apply to the Commissioner for an extension of time to file a return. This application has to be made by the due date of filing. The taxpayer must give good reasons to justify the extension for example sickness, absence from Uganda or such other reasonable cause for the extension.

The extension if granted will not exceed 90 days and does not alter the due date for payment of the tax due. Interest will therefore accrue on any outstanding tax.

If the taxpayer is dissatisfied with the Commissioners decision on the extension, he may challenge it under objections and appeal procedure.

10 Income Tax Clearance Certifi cateA Tax clearance certificate is a document issued by the Commissioner on request by the taxpayer, certifying that the taxpayer is compliant with his tax tax obligations.

It is required in some of the following circumsumstances:

Providing transport services for passengers and goods Tendering process with the Government Transferring funds abroad in excess of Shs 50 million

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11 AssessmentsAn assessment is the ascertainment of chargeable income and the amount of tax payable on it including penal tax. It also includes any decision of the Commissioner which is subject to objection and appeal under the Income Tax Act. For example, if a taxpayer makes a request for extension of time to file a return and the Commissioner rejects the request, the decision is deemed to be an assessment because assessment becausethe taxpayer can object.n object.

Types of AssessmentAsAssessments include the following:(i) Self assessment which is made by the taxpayer

through the return of income.(ii) Assessment notice which is made by the

Commissioner in any case in which the Commissioner considers necessary such as where no return has been furnished or the return

sfactory or in cases mentiofurnished is unsatisfactory or in cases mentioned above.in 9.4.3 above.

iii) Any decision of the Commissioner which is (iii) Ansubject to objection and appeal.

Assessment NoticeA notice of assessment is a document issued by the Commissioner under (ii) above specifying:(i) the amount of chargeable income of the

taxpayer,(ii) tax payable,


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(iii) tax paid if any,(iv) the due date of the payment of the tax,(v) the time, place, and manner of objecting to the

assessment.

12 Objections and Appeals under Income Tax

12.1 Objections

An objection is a communication in writing from a taxpayer to the Commissioner expressing dissatisfaction with an assessment issued.

An objection is valid if it satisfies the following legal requirements:(i) It is made in writing within 45 days of receipt of

notice of assessment.(ii) It precisely states the grounds upon which the

objection is based.

Late ObjectionIn case of a late objection, a written applicationtion to the Commissioner seeking an extension of thf the time for lodging the objection must be made, s, stating the grounds for the lateness.

Where an application to lodge a late oe objection has been made, the Commissioner may gragrant the extension. In the case where the Commissionioner refuses to grant an extension for lodging an objebjection, the taxpayer may also appeal to the Tribunal to review the objection unal to review the objection decision.

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12.2 Treatment of an Objection (Objection Decision)

The Commissioners response to the taxpayers notice of objection is referred to as an objection decision. In the decision, the Commissioner may:

(a) Allow the objection in whole or in part and amend the assessment accordingly.

(b) Reject the objection and confirm the assessment.The Commissioner shall make the objection decision within 90 days from date of receiving the objection m date of receiving the objection from the taxpayer.axpayer. Where the Commissioner does not respond wond within 90 days, the taxpayer may, elect in wriwriting to the Commissioner to treat the objection as having been allowed.

Where the objection has been lodged, 30% of the tax assessed or that part of tax not in dispute, whichever is greater, is payable pending the final resolution of the objection.

12.3 Appeal

arises where a taxpayer is dissatisfied with An appeal arises where a taxpayer is dissatisfied with e objection decision made by the Commissioner.the object

The first line of appeal is to request for a review by the Tax Appeals Tribunal, then to the High Court and; to the Court of Appeal.

In some instances, an appeal may be made to the High Court without going to the Tax Appeals Tribunal on matters of law.


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13 Withholding Tax SystemThe Income Tax Act Cap 340 specifies the persons who are required to withhold the tax as well as those upon whom the tax should be imposed, depending on the nature of the transaction.

This tax is deducted at source by a withholding agent upon making payment to another person.

A withholding agent is the person making payment and obliged to withhold tax; and the recipient of the payment is the payee.

This is a system of collecting tax by a withholding agent on a specified range of payments. These include:

(i) Employment income(ii) International payments(iii) Payments to non-resident Contractors or

professionals(iv) Payments on dividends(v) Payment for Goods and services by Governmrnment,

Government institutions and desdesignated withholding agents

(vi) Payments on professional fees(vii) Payment on imports

13.1 Withholding Tax on Employoyment Income

This tax is deducted by the employer from the by the employer from the employment income of every liable employee on a of every liable employee on

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monthly basis under the PAYE system and is covered under Part 4.2 of this handbook.

13.2 Withholding Tax on International Payments

Tax is imposed on every non-resident person who derives any dividend, interest, royalty, natural resource payment or management charge from sources in Uganda. The tax is withheld by the payer at the rate of 15% on the gross amount before payment.

However, interest paid outside Uganda by a resident outside Uganda by a resident person to a non-resideon-resident financial institution in respect of a loan thoan that was secured for purposes of a business in Ugin Uganda is exempt from withholding tax.

Withholding tax on payments to foreign entertainers and sports personsWithholding tax at 15% is also due on payments to non-resident public/private entertainers and sports persons who derive income from any performance in Uganda. The obligation to withhold the tax is placed

pay g p owith the person making the payment e.g. promoter, ch similar person.agent, or such similar p

13.3 Withholding Tax on Payments toWnon-resident Contractors or Professionals

This tax is imposed on every non-resident person deriving income under a Ugandan source service contract. A Ugandan source service contract is a contract under which the principle purpose is the performance of services which gives rise to income


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sourced in Uganda, and any goods supplied under the contract are only incidental to the purpose.

A Ugandan-sourced service contract excludes an employment contract. The tax is charged at 15% of the gross amount of payment and the person making the payment should withhold the relevant tax before effecting payment.

Non-resident service ContractsAny person who enters into any service contract with a non-resident is required to notify the Commissioner of the nature and duration of the service contract, and disclose the particulars of the non-resident to whom the payment is to be made, as well as the full contract value.

Basing on this information, the Commissioner may require the payer to withhold tax at a rate specified by the Commissioner.

13.4 Withholding Tax on Interest

A resident person who pays interest to anothother resident person is required to withhold tax at 15t 15% of the gross amount of the interest paid. WithWithholding tax is, however, not applicable where interterest is:

Paid by a natural person (individual). Paid to a fi nancial institution. Paid by a company to an ass

Documents

Taxation Handbook